Full Judgment Text
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PETITIONER:
HINDUSTAN STEEL WORKS CONSTRUCTION LTD.
Vs.
RESPONDENT:
STATE OF KERALA AND OTHERS
DATE OF JUDGMENT: 22/04/1997
BENCH:
G.N. RAY, G.T. NANAVATI
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
G.N. RAY, J.
Leave granted. Heard learned counsel for the parties.
The short question that arises for decision in this
appeal is whether the appellant which is government company
wholly owned and controlled by the Central Government is
excluded from the purview of the Kerala Construction Workers
Welfare Funds Act 1989 (Act No.20 of 1989) hereinafter
referred to as the Welfare Funds Act.
The appellant company entered into an agreement for
construction of a stadium at Kaloor, Ernakulam, Kerala with
the respondent No. 2 Greater Cochin Development Authority.
The terms of the contract inter alia stipulated that sub
contractors to be employed by the appellant for execution
for the contract were to be approved by the respondent No.2.
The appellant commenced work of construction of stadium and
from time to time engaged different contractors on a turnkey
basis.
The respondent No.2 started making deduction from the
part payment of the bills raised by the appellant at the
rate of 1% of the billed amount for the works executed by
the appellant on account of contribution under the Welfare
Funds Act and the schemes framed thereunder. The appellant
company protested against such deduction by the respondent
No.2 by contending that the appellant being a company wholly
owned and controlled by the Central Government did not come
within the purview of the Welfare Funds Act.
For the purpose of appreciating rival contention of the
parties to the appeal the following provisions of the
Welfare Funds Act are set out here under:
Section 2. Definition - In this
Act, unless the context otherwise
requires.
(a) (b) ......
(c) "Construction Work" means any
construction work carried out by
the State Government or quasi-
governmental agency or by a public
or private undertaking or by a
Society or by private individual
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and includes construction of any
building, road, pathway, causeway,
bridge, culvert, canal, tank,
channel, pond, dam, tunnel, sea
walls, walls for the prevention of
soil erosion, embankments, bunds,
drainage, kanas, culverts jetties,
compound walls, will and the like,
breaking of rocks and rubbles and
the repair in whatsoever manner
relation thereto and the demolition
thereof but does not include the
construction works relating to
places of public worship or
construction work for a residence
by a person for his own residential
purposes costing not more than
Rs.one lakh, repair works other
than extensions and reconstruction
of his residence, construction work
undertaken, by the Government of
India or any of its establishments
or institutions.
(d) ......
(e) "Contractor" means any person
registered as a Contractor with any
Department of the Government of
Kerala or with any Department of
any other State Government, or with
any local authority or with the
Kerala Water Authority or Devaswom
Boards of Universities in the
State, for carrying out
construction consideration for a
Government Company as defined in S.
617 of the Companies Act 1956
(Central Act I of 1956) for any
Board, Corporation or Society owned
or controlled by the Government of
Kerala and includes the Kerala
State Construction Corporation.
(f) ......
(g) "Employer: means,
(i) In the case of construction
work undertaken for the State
Government or for the Local
Authority or for the Kerala Water
Authority or for any Universities
in the State for Kerala Government
Company as defined in Section 617
of the Companies Act, 1956 (Central
Act I of 1956) or for a Board,
Corporation or a Society owned or
controlled by the Kerala
Government, the contractor;
(ii) In any other case, the person
for whom construction work is
done."
"Section B. Contribution to the
Fund (1) A member of the Fund shall
contribute to the Fund at the rate
specified in any of the slabs
hereunder:
SLAB
A. Ten rupees per month
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B. Fifteen rupees per month
C. Twenty rupees per month
Provided that a member may change
his rate of contribution at his
option at the commencement of any
year.
(2) An employer shall contribute
one percent of the cost of the
construction work undertaken by him
to the fund.
(3) In case where the employer is a
Contractor, the contribution
payable under sub-section (2) shall
be recovered by the Departments,
Authorities, Company or other
undertakings mentioned in item (I)
in clause (g) of Section 2 for the
bills payable to the contractor and
paid to the Fund within fifteen
days in the manner prescribed. In
the case of other employers, the
contribution shall be paid in such
manner to such authority and within
such time as may be prescribed.
(4) The Government shall pay to the
Fund every year an amount by way of
grant which shall not be less than
ten per cent of the Contribution
initially made by a member of the
Fund under sub-section (I).
The appellant company’s case is that the appellant
company is wholly owned and controlled by the Government of
India. The President of India is vested with the absolute
power to appoint and remove the Directors. Each activity of
the company is controlled by the Central Government. For
such deep and pervasive control of the appellant company by
the central government, the appellant is essentially an
establishment or an institution of the Government of India.
It may be stated here that several writ petitions were
filed in the Kerala High Court challenging the validity of
Welfare Funds Act and by a common judgement dated 7.4.1993
passed by the Singly Bench of the Kerala High Court the said
writ petition were disposed of inter alia holding that (i)
Section 2(g) and 8(2) of the Welfare Funds Act and clauses
25 and 26 of the scheme framed under the Act are valid (ii)
Section 9 is ultravires and void (iii) contributions are
payable under Section 8 of the welfare Funds Act only in
respect of works awarded as commenced after 7th August 1990.
The decision was given in the said judgment disposing
of writ petition directing that the Board shall adjust
contribution received from any of the said petitioner
towards construction for works awarded and commenced after
7th August 1990 and refind the excess is any to the writ
petitioners.
According to the appellant company, the said writ
petitioners were contractors registered with the public
works department of the State of Kerala and non of the said
writ petitioner was a company wholly owned and controlled by
the Government of India like the appellant company. Hence,
the appellant company’s claim for exemption was not
available to the other writ petitioners. When the claim for
exemption of the appellant company was not acceded to the
appellant company moved a writ petition before the Kerala
High Court. Since the decision of the Single Bench of the
Kerala High Court was assailed in Letter Patent Appeals
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before the Division Bench of the Kerala High Court by the
aggrieved writ petitioners, the writ petition filed by the
appellant company was heard and disposed of along with other
writ appeals challenging the validity of the Welfare Funds
Act and by a common judgment, the petition of the appellant
company was disposed of by considering the question of vires
of the Act without considering the claim of exemption by the
appellant company being a wholly owned and managed company
of the Central Government. The appellant then filed a
special leave petition being SLP (Civil) No. 26450 of 1995.
By order dated December 8, 1995 this court disposed of the
said special leave petition by giving liberty to the
appellant company to approach the Kerala High Court by
filing a review petition. Such review petition being R.P.
No. 9 of 1996 in O.P.No. 11626 of 1994 has been dismissed by
the Kerala High Court by order dated January 15, 1996 and
this appeal is directed against such decision of the Kerala
High Court.
Mr. Dipankar Gupta, the learned Senior counsel
appearing for the appellant has contended that the appellant
company is fully owned by the Central Government. The board
of management of the appellant company consists of persons
nominated by the Central Government. There is deep and
pervasive control of the Central Government of all the
activities of the appellant company. The appellant company
is not only a ‘State’ within the meaning of Article 12 of
the Constitution by fulfilling the criteria laid down by
this Court is various decision but for all intents and
purposes, the appellant company is essentially an
undertaking or establishment of the Central Government.
Mr. Gupta has contended that ‘construction work’ under
Section 2(c) of the Welfare Funds Act does not include
construction work under taken by the Government or any of
its establishment or institution. Hence, the construction
work undertaken by the appellant company being establishment
or institution of the Central Government cannot be held to
be construction work under Section 2[c] of the Welfare Funds
Act. In support of his contention, Mr. Gupta has referred to
the Constitution Bench decision of this Court in Ajay Hasia
and other Vs. Khalid Mujib Sehravardi and Other (1981) SCC
722. In the said decision, it has been held by this Court
that the court should give such an interpretation to the
expression " other authorities" referred to in Article 12 of
the Constitution as will not stultify the operation in
relation to the fundamental rights by enabling the
government to its obligation in relation to the fundamental
rights by setting up an authority to act as its
instrumentality or agency for carrying its functions. Where
constitutional fundamentals, vital to the maintenance of
human right are at stake, functional realism and not facial
cosmetics must be diagnostic tool, for constitutional law
must seek the substance and not the form. This Court has
also indicated that the government may act through its
instrumentality or agency of natural persons or it may
employ the instrumentality or agency of judicial persons to
carry out its functions. It has been held that the
government, in may of its commercial ventures and public
enterprises, is resorting to more and more frequently to
this resourceful legal contrivance of a corporation because
it has many practical advantage and at the same time does
involve the slightest diminution in its ownership and
control of the undertaking. In such, cases, the true owner
is the State, the real operator is the State and the
effective controllorate is the State and accountability for
its actions to the community and to Parliament is of the
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State. Even then, the corporation is a distinct juristic
entity with a corporate structure of its own. It has also
been indicated by this Court that if a corporation is an
instrumentality or agency of the government, it must be
subjected to the same limitations in the field of
constitutional law as the government itself, though in the
eye of the law, it would be distinct and independent legal
entity.
Mr. Gupta has submitted that this Court has also
noticed that in view of the inadequacy of the civil service
to deal with new problems which came to the realised, it
became necessary to forge a new instrumentality or
administrative device for handing these new problems. It was
in these circumstance and with view to supplying the
administrative need that the "Corporation came into being as
the third arm of the government and over the year it has
been increasingly utilised by the government for setting up
and running public enterprises and carrying out other public
functions."
(Emphasis supplied)
Mr. Gupta therefore submitted that it will be only
appropriate to accept the appellant company as a third arm
of the government being an establishment of the government
for the purpose of exemption from the purview of the Welfare
Fund Act.
In this connection, Mr. Gupta has also referred to
another decision of this Court in C.V. Raman Vs. Management
of Bank of India and another (1988 (3) SCC 105). In the said
case, this Court has taken into consideration of the
enforcement of Tamil Nadu Shops and Establishments Act and
similar acts in other states to the State Bank of India and
the nationalised banks. It has been held in the said
decision that the State Bank of India and the nationalised
banks are establishments under the central Government within
the meaning of Clause (a) of Section 4(1) of Tamil Nadu
Shops and Establishments Act as well other parimateria Shops
and Establishment Acts in other states. In the said case,
the contention of the employees of the banks was that the
banks being autonomous corporations having distinct juristic
entity with a corporate structure of their own, cannot be
treated to be owned by the Central Government and the
expression "under the Central Government" connotes complete
control in the sense of being owned by the Central
Government. Such contention, however, has not been accepted
by this Court. The contention that since Article 12 of the
Constitution occurs in Part III of the Constitution dealing
with the fundamental rights, the decisions in the cases
dealing with Article 12 of the Constitution cannot be made
the basis for contending that the State Bank of India and
the nationalised banks are establishments under the Central
Government under the Shops and Establishment Act, has also
not been accepted by this Court in C.V. Raman’s case. It has
been held that even though the decisions relating to
instrumentality or agency of the government were made in
connection with the fundamental right, but in view of the
construction of the expression "State or other authorities"
under Article 12 of the Constitution, it cannot be gainsaid
that the salient principle which have been laid down in the
decisions dealing with the import of Article 12 of the
Constitution with regard to the authorities having a
corporate structure and exercising autonomy in certain
spheres, will certainly be useful for determining as to
whether the State Bank of India and the nationalised bank
are establishments under the Central Government for the
purpose of enforceability of the Shop and Establishment Act.
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Mr. Gupta has submitted that the position of the
autonomous bodies being instrumentalities and agencies of
the government on account of administrative need and
functioning as ‘third arm’ of the government as noticed in
Ajay Hasia’s case has been relied by this Court in C.V.
Raman’s case. Mr. Gupta has contended that it has been
indicated in paragraph 12 of the judgment in Raman’s case
that if the criteria laid down in Ajay Hasia’s case as
quoted in the decision, is applied to the fact of the case
of C.V. Raman, it is obvious that even though the State Bank
of India and the nationalised banks may not be owned by the
Central Government and its employees may not be the
employees of the Central Government, they will certainly
fall within the purview of the expression "under the Central
Government" in view of the existence of deep and pervasive
control of the Central Government over these banks.
Mr. Gupta has, therefore, submitted that the appellant
is essentially a government establishment for all intents
and purposes and therefore is entitled to get exemption from
the purview of the Welfare Funds Act by treating it as an
establishment of the Central Government.
Such contention of Mr. Gupta has, however, been
disputed by Mr. R. Nariman, Senior Counsel appearing for the
respondent No. 2, Greater Cochin Development Authority. Mr.
Nariman has submitted that the decision in Ajay Hasia’s case
was made in the context of preserving the fundamental rights
of the citizen of India vis-a-vis the government and its
departments and also the agencies and instrumentalities of
the government in respect of which the government has deep
and pervasive control. In the instant case, the question of
enforcement of fundamental rights is not involved. Moreover,
the Welfare Funds Act is a beneficial legislation enacted
for the purpose of ensuring protection and welfare of the
employees. Mr. Nariman has also submitted that in C.V.
Raman’s case, this Court has kept in view the welfare
measures and in order to ensure welfare measures, it has
held that the State Bank of India and nationalised banks are
establishment under the Central Government for the purposes
of Shops and Establishment Act. In the instant case, the
government Company is trying to get out of the beneficial
measures under the Welfare Funds Act which has been enacted
to protect the interest of the labourers. Such beneficial
object under the Act should not be allowed to be frustrated
by expanding the meaning of instrumentality or agency of the
Central Government Mr. Nariman has further submitted that
even if on account of any ambiguity two interpretations are
possible, the one which will go to the benefit of labourers
must be accepted so that the purpose of the Act is not
frustrated Mr. Nariman has also submitted that the appellant
is a public undertaking. Referring to Clause (c) of Section
2 of the Welfare Fund Act, Mr. Nariman has submitted that
the expression "Construction Work" undertaken by the
Government of India or any of its establishments or
institution is very significant. Mr. Nariman has also
submitted that Clause (e) of Section 2 of the Welfare Funds
Act defines "Contractor" and according to the definition
under Clause (e) of Section 2, Contractor means any person
registered as a contractor for carrying out construction
work for consideration for a government company for any
State corporation or society made by the Government of
Kerala and includes Kerala State Government Corporation. Mr.
Nariman has submitted that the legislature has intended to
include government company as a contractor in Clause (e) and
if the legislature has intended to exclude government
Company or public undertaking for the purpose of Section
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2(e), there would have been specific exclusion of such
government company but such exclusion has deliberately not
been made in Clause 2(e). Therefore, the appellant company
cannot claim exemption from the purview of the Welfare Funds
Act.
Mr. Sreekumar, learned counsel appearing for the
respondent No.3, namely, the Construction Workers for the
Welfare Board, has also disputed the contentions made by Mr.
Gupta Mr. Kumar has submitted that the appellant is a
government company and claim that being a government company
it should get exemption from the enforcement of the Welfare
Funds Act. Mr. Kumar has submitted that the government
Company has been defined under Section 617 of the Companies
Act. The government company means any company in which not
less that fifty one percent of paid share capital is held by
the Central Governments and includes a company which is a
subsidiary of the Government Company. Hence, only with 51%
of paid up share capital belonging to the Central Government
or to the State Government or to both, a company will be
held to be a government company even though such company
cannot be held to be fully owned by the government. By the
definition of government company under the Companies Act,
the government company need not necessarily be company fully
owned by the Government and by that process an
instrumentality of the government. Hence, claim of exclusion
from the purview of the Act simply on account of being a
government company cannot be accepted. Mr. Kumar has also
supported the contention made by Mr. Nariman that the
appellant Company having undertaken the contractual work as
a commercial venture should not be permitted to claim
exemption from the purview of the Welfare Funds Act against
the interest of the poor labourer for whose benefit the said
Act has been enacted. He has, therefore, submitted that no
interference is called for by this Court and the appeal
should be dismissed.
After giving our careful consideration to the facts of
the case and the respective contention made by the learned
counsel for the parties, it appears to us that the appellant
company cannot be held to be a department of the government.
There may be deep and pervasive control of the government
over the appellant company and the appellant company, on
such account may be an instrumentality or agency of the
Central Government and as such a ‘State’ within the meaning
of Article 12 of the Constitution. Even though the appellant
company is an agency or instrumentality of the Central
Government, it cannot be held to be a department or
establishment of the government in all cases. Such
instrumentality or agency has been held to be a third arm of
the government in Ajay Hasia’s case but it should not be
lost sight of that it was only in the context of enforcement
of fundamental rights against the action of government and
its instrumentalities or agencies it was held that such
agencies were the third arm of the government and they
cannot avoid constitutional obligation. There is no question
of enforcing any fundamental right in the instant case. On
the contrary, the question of protecting the welfare of the
employees vis-a-vis the instrumentality or agency of the
Central Government under the Welfare Funds Act is to be kept
in mind for the purpose of deciding the rival contention of
the parties. If clauses 2 [c] and [e] of the Welfare Funds
Act are taken into consideration, it will be quite apparent
that the legislature has not intended to exclude the
government company or the statutory corporations from the
purview of the Welfare Funds Act. The decision in C.R.
Raman’s case, in our view, is not an authority for the
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proposition that an instrumentality or agency of government
is essentially a government department for all purpose and
such instrumentality or agency will enjoy the same privilege
and protection which any government or its establishment or
department enjoys in relation to a statute. The
establishment of a government only connotes in its plain
meaning, an establishment directly run by the government and
not through the agency or instrumentality of the Government.
The Welfare Funds Act is essentially an act to protect the
interest of and welfare of the labourers. Unless expressly
the instrumentality or agency of the government is kept
outside the purview of the said Act, it would not be proper
to interpret the said Act in a wide amplitude by removing
the corporate veil so as to exclude such instrumentality or
agency from the purview of the said Act.
We, therefore, do not find any reason to interfere with
the impugned decision of the Kerala High Court and this
appeal, therefore, fails and is dismissed. There will be,
however, no order as to cost.